The decision on the amount of spending on online communications and the mix between the different communications techniques such as search engine marketing, email marketing and online advertising is closely related to the previous one.
Varianini and Vaturi (2000) suggest that many e-commerce failures have resulted from poor control of media spending. They suggest that many companies spend too much on poorly targeted communications. They suggest the communications mix should be optimised to minimise the cost of acquisition of customers. It can also be suggested that optimisation of the conversion to action on site is important to the success of marketing. The strategy will fail if the site design, quality of service and marketing communications are not effective in converting visitors to prospects or buyers.
A further strategic decision is the balance of investment between customer acquisition and retention. Many start-up companies will invest primarily on customer acquisition. This can be a strategic error since customer retention through repeat purchases will be vital to the success of the online service. For existing companies, there is a decision on whether to focus expenditure on customer acquisition or on customer retention or to use a balanced approach.
Agrawal et al. (2001) suggest that the success of e-commerce sites can be modelled and controlled based on the customer lifecycle of customer relationship management (Chapter 6). They suggest using a scorecard, assessed using a longitudinal study analysing hundreds of e-commerce sites in the USA and Europe. The scorecard is based on the performance drivers or critical success factors for e-commerce such as the costs for acquisition and retention, conversion rates of visitors to buyers to repeat buyers, together with churn rates. Note that to maximise retention and minimise churn (customers who don't continue to use the service) there will need to be measures that assess the quality of service including customer satisfaction ratings. These are discussed in Chapter 7. There are three main parts to their scorecard:
1 Attraction. Size of visitor base, visitor acquisition cost and visitor advertising revenue (e.g. media sites).
2 Conversion. Customer base, customer acquisition costs, customer conversion rate, number of transactions per customer, revenue per transaction, revenue per customer, customer gross income, customer maintenance cost, customer operating income, customer churn rate, customer operating income before marketing spending.
3 Retention. This uses similar measures to those for conversion customers.
The survey performed by Agrawal et al. (2001) shows that:
companies were successful at luring visitors to their sites, but not at getting these visitors to buy or at turning occasional buyers into frequent ones.
In the same study they performed a further analysis where they modelled the theoretical change in net present value contributed by an e-commerce site in response to a 10%
Critical success factors that determine whether business and marketing objectives are met.
E-marketing communications that are executed to support a specific marketing campaign such as a product launch, price promotion or a web site launch.
change in these performance drivers. This shows the relative importance of these drivers or 'levers', as they refer to them:
• Visitor acquisition cost: 0.74% change in NPV
• Customer conversion rate: 0.84% change in NPV
• Cost of repeat customer: 0.69% change in NPV
• Revenue per repeat customer: 5.78% change in NPV
• Repeat customer churn rate: 6.65% change in NPV
• Repeat customer conversion rate: 9.49% change in NPV.
This modelling highlights the importance of on-site marketing communications and the quality of service delivery in converting browsers to buyers and buyers into repeat buyers. It is apparent that marketing spend is large relative to turnover initially, to achieve customer growth, but is then carefully controlled to achieve profitability.
We will return to this topic in Chapter 8, where we will review the balance between campaign-based e-communications which are often tied into a particular event such as the launch or re-launch of a web site or a product. For example, an interactive (banner) advert campaign may last for a period of 2 months following a site re-launch or for a 5-month period around a new product launch.
In addition to campaign-based e-communications we also need continuous e-communi-cations. Organisations need to ensure that there is sufficient investment in continuous online marketing activities such as search marketing, affiliate marketing and sponsorship.
We observe that there is a significant change in mindset required to change budget allocations from a traditional campaign-based approach to an increased proportion of expenditure on continuous communications.
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